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BE THERE WHEN THE MUSICAL YEAR KICKS OFF!

I haven't seen a more illustrative graph than the Financial Times' one for the latest Tankan survey. When you look at it, it appears reminiscent of a plane that has spluttered out of fuel after climbing to a decent altitude, and then headed straight into a nosedive. The graph for the previous quarter's survey looked pretty dismal but if you add another 20 degrees to the angle of the descent, that's how it looked.

The survey, released on Monday by the Bank of Japan, placed the confidence of the nation's large manufacturers at minus 24. The drop from the previous quarter was 21 points which makes it the sharpest decline in more than three decades. And let's put that in context – that was caused by the 1973-74 oil shock at that time Tankan's headline index dropped 26 points. During the same quarter a year ago manufacturers' confidence was rated above 20 points. This is a seven-year low and I'm guessing that 7 years ago, in the same quarter, September 11 happened, right?

You don't have to be a genius to figure out what was behind the drop, global financial turmoil, the recession which everyone had seen coming a mile away and the drying up of credit all contributed. The strong yen and the devastation in foreign markets couldn't have helped either.

Following the BOJ's announcement, the government immediately began stepping up pressure on the central bank to do something to bolster economic growth. Finance Minister Shoichi Nakagawa publicly called on the BOJ to do… well something.

"I hope the BOJ considers economic conditions and the liquidity problems and reaches a conclusion" on what to do, said Nakagawa on Tuesday in Tokyo.

Mary Iwashita, chief market economist at Daiwa Securities SMBC told Bloomberg that Prime Minister Aso was making a kind of last ditch attempt to prove his worth.

"Aso wants to show his leadership by implementing monetary and fiscal policy at the same time…He's turning to the central bank as a last resort, as fiscal constraints and his weakening political position limit his options," she said.

Last week Aso announced the details of his second economic stimulus package saying that he would spend more to help the unemployed as more workers are laid off – particularly at some of the large manufacturers. Toyota has announced it will lay off a lot of temporary workers while Sony said it would have to sack something 8000 full-timers and 8000 others. This was worldwide mind you, but it's indicative of what some of the large exporters are doing at the moment. The government also said it would buy commercial paper as part of the package to help funding for businesses.

Aso pledged 4,000 billion yen ($44bn) in spending and tax cuts and Y3,000 billion yen in promised credit for companies. He also raised the limit for public fund injections for financial institutions to 12,000 billion.

The Nikkei also reported on Tuesday that the budget for next year would be a record 89 trillion yen ($982 billion) so I'm guessing that there will be more stimulus packages to come.

Of particular note within the Tankan survey was the automotive sector which dropped 46 points from the previous quarter. While Japan's Big Three are in a hell of a better position than their American counterparts, they are hurting. This was definitely one of the hardest hit sectors of all the manufacturers. The lucrative North American market that had enabled particularly Toyota to be so profitable in recent years has dried up as American families go into damage control.

But it could have been worse, according to Julian Jessop, of Capital Economics. He was quoted in the Financial Times as saying that the Tankan results were actually better than expected, but he said that large manufacturers expected sentiment to decline even further in the next quarter…

By Michael Condon
Editor-in-Chief

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